Case Summary (G.R. No. 176667)
Procedural History
Pasig City issued Assessment Notices: October 25, 2000 (alleged deficiencies for 1998–1999) and November 19, 2001 (deficiencies for 2000–2001), computed by reference to petitioner’s gross revenues as reflected in audited financial statements. Petitioner filed protests asserting the tax base should be gross receipts, not gross revenue. The city denied the protests, prompting petitioner to file suit in the RTC seeking annulment and cancellation of the deficiency assessments totaling P17,262,205.66. The RTC, after finding respondents in default, cancelled and set aside the assessments (March 8, 2004). The CA reversed and dismissed the complaint without prejudice (November 20, 2006) on the ground that petitioner failed to show that Atty. Ramos was duly authorized by the board to sign the Verification and Certification of Non-Forum Shopping. Petitioner sought review in the Supreme Court.
Issues Presented on Review
- Whether the CA correctly dismissed petitioner’s complaint for failure to show specific board authorization for the signatory of the Verification/Certification against forum shopping.
- Whether the CA had jurisdiction to hear the city’s appeal given that the controversy allegedly involved a pure question of law (thus falling under Supreme Court exclusive review by Rule 45).
- On the merits, whether local business tax for contractors should be computed on gross receipts (as petitioner contends) or gross revenue (as respondent applied).
Verification and Certification Requirement — Substantial Compliance
The CA dismissed for lack of proof that Atty. Ramos was specifically authorized by the board to sign the Verification/Certification. The Supreme Court applied established precedent permitting relaxation of strict documentary requirements where special circumstances or compelling reasons exist and where substantial compliance is achieved. The Court cited prior rulings (e.g., General Milling, Shipside) in which belated submission of board resolutions or secretary’s certificates and consideration of substantive merits justified tempering formal defects. Here petitioner subsequently submitted a Secretary’s Certificate (dated May 6, 2002) authorizing Atty. Ramos to file protests and execute related documents. Given that submission and the substantial merits of the controversy, the Court treated the verification defect as sufficiently remedied and declined to bar adjudication on that basis.
Jurisdictional Analysis — Question of Law vs. Fact
The Supreme Court held that the core dispute—whether the local business tax for contractors is to be measured by gross receipts or gross revenue—is a question of law because its resolution depends on statutory interpretation and application of legal definitions rather than on re-evaluation of contested factual evidence. The Court reiterated the proper test: a question is one of law when it can be resolved without reviewing or reweighing evidence; it is factual if resolution requires examination of probative value of evidence. Because the audited financial statements and other documents were undisputed and the dispute concerned the legal tax base, the issue was legal. Consequently, the CA erred in treating the appeal as raising mixed questions of fact and law and in entertaining the appeal instead of dismissing it for error in choice or mode of appeal under the Rules of Court.
Statutory Framework — Local Business Tax and Definitions
The applicable taxing authority is found in Section 143 of the Local Government Code, which authorizes municipalities to impose taxes on contractors in accordance with a schedule based on "gross receipts" for the preceding calendar year (Section 143(e)). The Code’s definitional provision (Section 131(n)) defines "Gross Sales or Receipts" to include the total amount representing the contract price, compensation, or service fee, "including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed," excluding certain items (discounts if determinable, returns, excise tax, VAT). The statutory text thus expressly ties the municipal business tax base for contractors to gross receipts as actually or constructively received.
Legal Concept of Constructive Receipt and Supporting Jurisprudence
The Court relied on established jurisprudence clarifying that receipt may be actual or constructive. Decisions cited (Commissioner of Internal Revenue v. Bank of Commerce; Commissioner v. Bank of the Philippine Islands) treat amounts withheld at source as constructively received by the payee, and recognize that constructive receipt principles apply in tax treatments. Revenue Regulations cited in the decision (RR No. 16-2005) further define constructive receipt with examples (e.g., bank deposits made available without restriction, offset notices) and emphasize that constructive receipt arises when the consideration is placed under the control of the person who rendered the service without restrictions. The statutory and regulatory framework therefore contemplates gross receipts inclusive of amounts actually or constructively received.
Distinction Between Gross Receipts and Gross Revenue; Accounting Method Implications
The Court distinguished "gross receipts" from "gross revenue." Gross revenue (as used in accounting and consistent with International Accounting Standards/IFRS references cited) is the gross inflow of economic benefits measured at fair value of consideration received or receivable and may include receivables not yet received. Petitioner’s audited financial statements followed the accrual method of accounting, under which revenue is recogni
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Facts of the Case
- Petitioner: Ericsson Telecommunications, Inc., a corporation with principal office in Pasig City engaged in the design, engineering, and marketing of telecommunication facilities/systems.
- Initial assessment: Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City assessed petitioner a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00 respectively, based on petitioner’s gross revenues as reported in its audited financial statements for the years 1997 and 1998.
- Subsequent assessment: Notice of Assessment dated November 19, 2001 assessed petitioner business tax deficiencies for the years 2000 and 2001 amounting to P4,665,775.51 and P4,710,242.93 respectively, based on petitioner’s gross revenues for the years 1999 and 2000.
- Protests filed: Petitioner filed a Protest dated December 21, 2000 (challenging the October 25, 2000 assessment) and another Protest dated January 21, 2002 (challenging the November 19, 2001 assessment), asserting that local business tax should be computed on gross receipts, not on gross revenue.
- Respondent action on protest: The City of Pasig denied petitioner’s protest and gave petitioner 30 days within which to appeal the denial.
- Judicial initiation: Petitioner filed a petition for review with the Regional Trial Court (RTC) of Pasig, Branch 168, seeking annulment and cancellation of deficiency local business taxes totaling P17,262,205.66.
- Respondent’s procedural challenge: Respondent and the City Treasurer moved to dismiss on grounds of lack of subject matter jurisdiction and petitioner’s lack of legal capacity to sue.
- RTC handling of motion to dismiss: RTC denied the motion to dismiss in an Order dated December 3, 2002 due to respondents’ failure to include a notice of hearing; respondents were declared in default thereafter and petitioner was allowed to present evidence ex parte.
- RTC decision: In a Decision dated March 8, 2004, the RTC canceled and set aside the assessments issued by respondent and its City Treasurer (dispositive: cancel and set aside Assessment Notice dated October 25, 2000 and Notice of Assessment dated November 19, 2001).
- Court of Appeals (CA) reversal: On appeal, the CA rendered a Decision dated November 20, 2006 setting aside the RTC decision and dismissing the plaintiff/appellee’s complaint without prejudice.
- Basis of CA decision: CA sustained respondent’s claim that petitioner failed to show that Atty. Maria Theresa B. Ramos (petitioner’s Manager for Tax and Legal Affairs) who signed the Verification and Certification of Non-Forum Shopping was duly authorized by the Board of Directors to sign.
- Petitioner’s motion for reconsideration: Denied by CA in a Resolution dated February 9, 2007.
- Elevation to the Supreme Court: Petitioner filed a Petition for Review on Certiorari under Rule 45, raising principally: (1) CA erred in dismissing for lack of showing that signatory of verification/certification was authorized; (2) CA lacked jurisdiction because the appeal involved pure questions of law reserved for the Supreme Court; (3) alternatively, CA erred by not deciding the merits, since the assessments were invalid and contrary to the Pasig Revenue Code and the Local Government Code.
Procedural Posture and Relief Sought
- Relief sought below: Annulment and cancellation of petitioner’s deficiency local business tax assessments totaling P17,262,205.66.
- RTC disposition: Judgment in favor of plaintiff ordering the cancellation and setting aside of the two assessment notices (March 8, 2004 Decision).
- CA disposition: Set aside RTC decision and dismissed complaint without prejudice (November 20, 2006 Decision); denial of petitioner’s motion for reconsideration (Resolution dated February 9, 2007).
- Supreme Court action: Petition given due course and granted; CA Decision and Resolution set aside; RTC Decision reinstated.
Issues Presented
- Whether the CA correctly dismissed the case for petitioner’s alleged failure to show that the signatory of the Verification and Certification of Non-Forum Shopping (Atty. Ramos) was specifically authorized by the Board of Directors to sign for petitioner.
- Whether the CA had jurisdiction to entertain respondent’s appeal or whether the appeal raised a pure question of law that should have been brought to the Supreme Court under Rule 45.
- Whether the local business tax on contractors should be computed on gross receipts or on gross revenue (the substantive tax issue).
- Whether the CA should have decided the merits for speedy disposition despite procedural infirmities.
Legal Standards and Authorities Cited
- Local Government Code provisions:
- Section 143 (tax on business) — authorizes municipalities to impose taxes on contractors and other independent contractors “with gross receipts for the preceding calendar year in the amount of: Amount of Tax Per Annum” — the provision specifically refers to “gross receipts.”
- Section 131 (definition provision) — subsection (n) defines “Gross Sales or Receipts” to include total amount representing contract price, compensation or service fee, including amounts charged for materials and the deposits or advance payments actually or constructively received during the taxable quarter for services performed or to be performed, excluding certain items (discounts determinable at time of sale, sales return, excise tax, VAT).
- Rules of Court cited:
- Section 2(c), Rule 41 — in cases involving questions of law, appeal lies to the Supreme Court by petition for review on certiorari under Rule 45.
- Section 5(f), Rule 56 — ground for dismissal of appeal: error in the choice or mode of appeal.
- Accounting and revenue definitions:
- International Financial Reporting Standards / IAS 18 (Revenue) — revenue defined as gross inflow of economic benefits (cash, receivables, and other assets) from ordinary activities, measured at fair value of consideration received or receivable.
- Revenue Regulations No. 16-2005 (Consolidated VAT Regulations of 2005) — defines and exemplifies “constructive receipt”; provides examples where the money consideration is placed at control of person who rendered service without restrictions (e.g., bank deposits made available without restrictions, notices to offset and acceptance, transfer of amounts retained by payor to contractor’s account).
- Jurisprudence cited by the Court in support of principles:
- General Milling Corporation v. NLRC; Shipside Incorporated v. Court of Appeals;